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International Property
Business
Lee Sleight
Lee Sleight

Concrete Analysis | As Hongkongers rush for UK property, beware of this 40 per cent inheritance tax pain

  • Acquiring UK residential property comes with a substantial inheritance tax liability, regardless of residence or domicile status
  • Estate and succession planning to ensure adequate liquidity can help avoid burdening future beneficiaries with unwelcome tax liability

Reading Time:3 minutes
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London's skyline, including the Gherkin and Lloyd's of London, with the buildings of the Docklands in the right background. Photo: Handout
Lee Sleight
UK property continues to benefit from strong interest from foreign investors, especially those from Hong Kong seeking a path to citizenship. London, specifically, has always been attractive, as it consistently features among the top three cities in the world for prime property investments.
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Asian investors are driving this trend, as they are particularly attracted to the flexibility and potential returns, through either capital appreciation or recurrent income, that diversification through this asset class offers. The trend will accelerate over the coming years, as wealth across the Asian region grows.
Challenges to the UK market, whether it be Brexit or the additional 2 per cent Stamp Duty Land Tax surcharge for overseas buyers from April next year, are unlikely to have a lasting impact on the attraction of investing in UK prime residential property.

A combination of currency weakness, record low lending rates, demand outstripping supply and uncertainty in the global financial markets, will further motivate foreign investors to make that UK property purchase sooner rather than later.

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However, many of these investors and their advisers fail to realise that by acquiring the residential property in the UK, they also acquire a latent 40 per cent inheritance tax (IHT) liability, regardless of their residence or domicile status.

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Not many are aware that this applies to properties that are either directly or indirectly held, via offshore companies or trusts, for example. This last point, applicable since April 2017, encompasses existing ownership structures and may be one that many, who have held the property for a number of years, are unaware of. This may be true for investors from countries such as China or Malaysia, where estate taxes do not exist.

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